BMO & Canal Road Group target $1bn in Direct Lending

BMO and Canal Road Group (CRG) have announced a collaborative initiative to allocate up to $1 billion towards direct lending investments. The partnership aims to boost private lending for sponsor and corporate clients.

• BMO Financial Group has total assets of $1.41 trillion as of October 31, 2024

• CRG's founders, Don Young and Mike Damaso, previously led CBAM Partners, a $15 billion credit platform sold to Carlyle in 2022

The partnership was officially announced on January 10, 2025, marking a significant expansion into the private credit market

BMO and Canal Road Group Partnership Highlights:

• CRG is an alternative asset manager specializing in senior secured corporate debt investments for North American companies

• BMO will hold a non-voting minority stake in CRG's management company

• The collaboration combines BMO's banking relationships and capital markets expertise with CRG's investment management capabilities

• CRG will benefit from increased capital, deal flow, and access to BMO's client network

• BMO gains access to CRG's network of borrowers, lenders, sponsors, and management teams

• The partnership enables long-term credit facilities and expanded financing solutions

Direct Lending Partnership Strategic Insights

Target Return Profile

• While specific yield targets aren't disclosed, the partnership suggests a focus on senior secured corporate debt with competitive market returns

• Private credit typically generates returns in the mid-single-digit to low double-digit range

• BMO's non-voting minority stake allows exposure to higher-yielding private credit returns without balance sheet consolidation

Transaction Characteristics

• Focused on upper middle-market companies in North America

• Specializes in senior secured corporate debt investments sourced largely from sponsors

• Founders Don Young and Mike Damaso previously led CBAM Partners, a $15 billion credit platform, indicating sophisticated deal expertise

Operational Strategy

• Combination of BMO's extensive banking network and CRG's investment management capabilities

• Aim to provide tailored financing solutions for businesses

• Flexible approach allowing access to a full spectrum of financing options

Capital Deployment

• $1 billion committed capital for direct lending strategy

• Deployment timeline not explicitly specified

• BMO will provide credit facilities to support CRG's long-term strategy

• Non-voting minority stake in CRG's management company

Unique Value Proposition

• Leveraging BMO's robust banking platforms and CRG's growing capital base

• Enhanced access to private lending capital pool

• Focus on critical transactions for sponsor and corporate clients

• Ability to provide innovative, comprehensive financing solutions

Strategic Considerations

• BMO gains exposure to private credit market without full balance sheet risk

• Access to CRG's network of borrowers, lenders, sponsors, and management teams

• Potential to diversify revenue streams beyond traditional banking

Market Impact

The partnership represents a strategic move to capture market share in the $1.5 trillion private credit market, positioning BMO to offer more flexible and tailored financing solutions to upper middle-market companies.

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